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Consumer Cognition and Pricing in the Nines in Oligopolistic Markets

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Author Info

  • Kaushik Basu

Abstract

"The paper fully characterizes the Bertrand equilibria of oligopolistic markets where consumers may ignore the last (i.e., the right-most) digits of prices. Consumers, in this model, do not do this reflexively or out of irrationality, but only when they expect the time cost of acquiring full cognizance of the exact price to exceed the expected loss caused by the slightly erroneous amounts that are likely to be purchased or the slightly higher price that may be paid by virtue of ignoring the information concerning the last digits of prices. It is shown that in this setting there will always exist firms that set prices that end in nine though there may also be some (nonstrict) equilibria where a non-nine price ending occurs. It is shown that all firms earn positive profits even in Bertrand equilibria. The model helps us understand in what kinds of markets we are most likely to encounter pricing in the nines." Copyright 2006, The Author(s) Journal Compilation (c) 2006 Blackwell Publishing.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 15 (2006)
Issue (Month): 1 (03)
Pages: 125-141

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Handle: RePEc:bla:jemstr:v:15:y:2006:i:1:p:125-141

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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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Cited by:
  1. Nicola Lacetera & Devin G. Pope & Justin R. Sydnor, 2012. "Heuristic Thinking and Limited Attention in the Car Market," American Economic Review, American Economic Association, vol. 102(5), pages 2206-36, August.
  2. Snir, Avichai & Levy, Daniel & Gotler, Alex & Chen, Haipeng (Allan), 2012. "Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity," MPRA Paper 42252, University Library of Munich, Germany.
  3. David Demery & Nigel W. Duck, 2007. "Two plus two equals six: an alternative explanation of why so many goods prices end in nine," Bristol Economics Discussion Papers 07/598, Department of Economics, University of Bristol, UK.
  4. Daniel Levy & Dongwon Lee & Haipeng (Allan) Chen & Robert J. Kauffman & Mark Bergen, 2010. "Price Points and Price Rigidity," Emory Economics 1008, Department of Economics, Emory University (Atlanta).
  5. Andrea Gallice, 2008. "The Neglected Effects of Demand Characteristics on the Sustainability of Collusion," ICER Working Papers 03-2008, ICER - International Centre for Economic Research.
  6. Ashton, John K. & Hudson, Robert S., 2008. "Interest rate clustering in UK financial services markets," Journal of Banking & Finance, Elsevier, vol. 32(7), pages 1393-1403, July.
  7. Hackl, Franz & Kummer, Michael E. & Winter-Ebmer, Rudolf, 2014. "99 Cent: Price points in e-commerce," Information Economics and Policy, Elsevier, vol. 26(C), pages 12-27.
  8. Antonio Filippin, 2013. "The Effect of .99 Price Endings on Consumer Demand: An Example of Confounding Factors Surviving in Field Experiments," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 9(2), pages 211-229, July.

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